Reverse engineering retail - Wallace Cotton and the rewards of doing things differently
By Hayes Knight - 15 October 2015
E-commerce is big business. Just ask online-only retailers like Amazon, beauty products supplier Strawberrynet, and fashion marketplace ASOS. With everyone shopping online, retailers that don’t supplement their bricks-and-mortar stores with an e-commerce offering risk getting left behind.
But one Kiwi company is successfully bucking that trend.
Wallace Cotton is a bed linen, clothing and homewares brand
launched in 2006 by Paula and Bill Wallace. It began as an
e-commerce site with a mail order catalogue distributed to a few
hundred friends and family. A decade later, Wallace Cotton has a
nationwide presence and is poised to open its eighth store, with a
ninth in the pipeline.
"We were early adopters of e-commerce; online shopping was in
its infancy in 2006," says Bill. "We've moved in the opposite
direction to many retailers who had the bricks-and-mortar presence
first. From day one, we focused on building a quality database of
customers. Prior to this business, we designed and supplied bed
linen to some major retail chains that started as mail-order,
database companies, so we learnt how they did things. We knew that
knowing our customers was vital to marketing to them
So why expand into traditional retail when others were moving
online? Bill says customers began asking where they could see and
feel the Wallace Cotton range. Six months after the first
catalogue, Bill and Paula opened a tiny store in Birkenhead. The
business grew steadily thanks to word of mouth and targeted
magazine advertising. A year later, the pair doubled the size of
their first store and, in 2009, took a short-term lease on a store
in Newmarket to test the retail waters in the busy shopping
"Opening the Newmarket store coincided with the start of the
GFC, but we did well and our confidence grew," says Bill. "We've
since renewed the lease twice and Newmarket remains our highest
Wallace Cotton now has branches in Wellington,
Takapuna, Ponsonby, Napier, Albany and Cambridge, and a nationwide
presence in homewares stores from Tauranga to Invercargill. Bill
says the opening of Wallace Cotton's Ponsonby Central store in 2012
illustrated how its physical stores could become marketing
"It's a very high-profile location and we saw a
significant jump in brand recognition as a result. A lot of people
said they didn't realise we even had physical stores."
The company's eighth store, soon to open at the new
Northwest shopping centre, is a chance to test a mall location and
introduce the brand to a new shopping demographic.
"When we open in a new location, we already have
online customers in that area," Bill comments. "We survey our
customers regularly and they always request more stores closer to
where they are. That's why we opened in Napier last year - we knew
we had a strong customer base in the Hawke's Bay. Again with
Cambridge, we have a large Waikato customer base."
As more retail stores open, the online proportion of
Wallace Cotton's total sales is dropping, but e-commerce currently
accounts for around 23%.
"The web is still an important part of our future
growth. These days, retailers need to be where their customers want
them to be - whether that's online, mobile, or social media. It's a
constantly changing landscape, and meeting customers' changing
expectations is one of the challenges," explains Bill.
However, he believes that as long as they remain
relevant and provide an experience customers can't get online,
retail stores will continue to play an important role. "They need
to inspire and delight," he says.
"There's evidence in the last 12 months of pure-play
online retailers moving to open physical stores as well. The web is
great but if you order something and you're not completely sure
about the colour, fit, or texture, you have to go through the
process of returning it," Bill explains. "Our stores and website
work hand in hand. They support each other. Customers might
research online and come into the store and purchase, or vice
Hayes Knight Director Tristan Dean has overseen
Wallace Cotton's accounting and advisory needs (including
compliance, tax minimisation, structuring, asset protection,
cashflow and growth management) since 2010. He says the Wallace
Cotton story illustrates the benefits of planning for and managing
"They've had some really impressive expansion and
haven't been afraid to take a counter-cyclical approach. But
they've done it in a methodical, well thought-out way," says
Tristan. "They want to grow and increase their stock and product
lines, but you need cash to do that. We've been advising them on
efficient ways to structure their debt, getting maximum tax
benefits out of their borrowings, and making sure they're always
aware of and planning for the cash implications of their
Wallace Cotton has considered opening physical
stores in Australia where it also has online customers. But the
challenging and competitive retail environment has made them
"That doesn't mean we don't have international aspirations,"
Bill comments. "We're currently investigating an opportunity to
distribute our range in China where there's growing demand for
international-branded product. And in the medium to long term we'd
like to replicate our business model, maybe in the UK."
Cotton Directors Bill and Paula Wallace